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Indonesia Orders Foreign Drugmakers to Manufacture In-Country

In a surprise move, Indonesia’s Ministry of Health issued a new regulation in November 2008 designed to force foreign companies to manufacture drugs in Indonesia. The regulation states that foreign-owned companies will not be allowed to register imported drugs for sale unless they have a drug production facility in Indonesia.

This regulation is not being implemented yet; drugmakers are being given two years to comply. It would affect about 13 foreign drug companies whose Indonesian offices sell imported drugs but do not manufacture there, mostly large multinationals like Merck, Wyeth, and Sanofi-Aventis.

Indonesia has the third largest population in Asia (237 million people), and its drug market of nearly $500 million is growing quickly, making it an important destination for future growth. However, Indonesia is one of Asia’s poorer countries in terms of healthcare consumption. By comparison, India, with about four times the population, has a drug market of over $10 billion.

The affected drugmakers are weighing whether it would be easier to build pharmaceutical plants in Indonesia, or simply exit the country. It is harder for foreign companies to do business in Indonesia than in most other Asian countries, due to corruption, infrastructure deficits, and political uncertainty. This abrupt government action adds to that political uncertainty, impacting Indonesia’s attractiveness for drug companies of all sizes.

It is unclear if the government’s threat will actually be carried out. Despite protests by foreign drug companies in Indonesia as well as the US Chamber of Commerce, the Minister of Health, Siti Fadilah Supari, has remained adamant. The ministry also announced that if multinationals choose to leave Indonesia, the government will directly import drugs that become unavailable.